Mobile phone giant Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) hailed its deal to buy Germany’s biggest cable companyas a pivotal move in its “most important market” as it continues to feel the squeeze in battered European economies.
Vodafone Friday said it expects to complete the EUR7.7 billion acquisition of Kabel Deutschland Holding AG (FRA:KD8) (ETR:KD8) by the end of the year, as weakness in Europe continued to weigh on the world's second-biggest mobile operator's performance.
Acquisition Of Kabel Will Create An Excellent Platform
The company is attempting to broaden its product range beyond mobile services in the face of long-term decline in European markets, especially in the south. Europe, which contributes roughly two-thirds of the group's revenue, has weighed heavily on Vodafone Group Plc (NASDAQ:VOD) (LON:VOD)'s earnings in recent years, despite relatively strong performances in India, Africa and the U.S.
Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) boss Vittorio Colao said the group has made a good start to its financial year despite weak economies and intense competition, adding trading was in line with its expectations. He said: “The proposed acquisition of Kabel Deutschland Holding AG (FRA:KD8) (ETR:KD8) will create an excellent platform for our unified communications strategy in our most important market. “Although regulation, competitive pressures and weak economies, particularly in southern Europe, continue to restrict revenue growth, we continue to lay strong foundations for the longer term."
Higher-Speed Broadband Internet Services
The Kabel deal would let Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) offer higher-speed broadband Internet services than it does now and save fees it now pays to Deutsche Telekom AG for use of its network on the so-called "last mile" to customer households. Vodafone already offers a slower-speed fixed-line Internet service.
Increased "Competitive Intensity" For The Fall In Q1 sales
Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) said first-quarter sales in Northern and Central Europe--where it derives most of its revenue--declined 3 percent. The company cited increased "competitive intensity" for the fall, which included drops of 4.5 percent in the U.K. and 5.1 percent in Germany.
In Southern Europe, revenue fell 14.4 percent as customers continued to be pinched by higher living costs.
Overall, Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) said group service revenue including joint ventures fell 3.5 percent to GBP 10.16 billion, but added that it was on course to meet its full-year targets.
Last month, Kabel Deutschland Holding AG (FRA:KD8) (ETR:KD8)'s board said it would recommend Vodafone's all-cash offer of 87 euros a share. The bid was given a boost earlier this week when John Malone's international cable company, Liberty Global Inc., seen as a rival suitor to Kabel, appeared to pull out of the race. Vodafone said it expected the deal to be concluded by the end of 2013.